Olam made the wrong move with its bonds issue

"Hastily cobbled together" issue risky, says former Temasek honcho.

In an interview with IG Markets, Michael Dee, a former senior managing director at Temasek, reinforced comments that Olam should sell some of its own equity to raise capital not participate in an expensive bond-with-warrants rights issue.

Mr Dee noted that Olam must have spent just one weekend hatching the plan before launching it on Monday. He said: “That is not what I would call a reflective, holistic and well-thought out strategy. It was hastily cobbled together in isolation from the fundamental business and financial issues that remain to be addressed.”

And indeed this is how the market is viewing the desperate attempt to deal with the black cloud of uncertainty hanging over Olam. The share price did edge up 0.7% today but this followed a slump of nearly 10% the previous two days.

Mr Dee also feels Olam should get its debt rated. “I spent the early part of a 30-year career in the international debt markets at Morgan Stanley and never once did I underwrite a bond issue without a rating. When you do this as a company under skepticism, then you will get harshly penalised. If this US$750m trades without a rating it will trade worse than if it had a rating in my opinion.”

Indeed, Olam could pay dearly for committing itself to such a generous offer as profits take a big dent with the yields on offer.

Mr Dee also put forward a range of strategies Olam could consider to fight its way out of this crisis of confidence. These include selling off some if its non-perishable inventories to prove it can raise cash quickly this way, asking loyal suppliers for cash up-front along with suspending capital expenditure.

“Sunny is a smart guy but he’s been in the centre of a tornado and needs to take a step back and be more reflective in his decision-making. If he changed his mind on this latest capital-raising exercise I think the market would give him some slack after a little short-term pain.

Mr Dee feels Olam is not a stock for retail investors due to its complicated nature. “Retail investors should put their money in stocks they can understand. I think financial stocks are too complicated and it would be bad advice to invest in them also.”

While comparing Temasek’s support to Warren Buffet’s backing of Goldman Sachs, Mr Dee added that Muddy Waters has done some good.

“Muddy Waters can bring research value to the market place. I would prefer however they were pure research for hire and not stapled to a short hedge fund. I am uncomfortable their incentive is to cause the collapse of a company leading to the wholesale destruction of value and lives. I lived in Houston and knew Ken Lay and I categorically reject the comparison of Olam to Enron.”